Digitalisation

Digitalisation – the application of digital technologies – could have a major effect on emissions as an enabler in accelerating clean energy transitions. Across the energy sector, digitalisation can help cut costs, improve efficiency and resilience, and reduce emissions.

In electricity systems, for example, machine learning, smart meters and other digital technologies can help integrate higher shares of variable renewables and better match supply and demand from increasingly heterogeneous decentralised sources such as electric vehicles (EVs) and connected appliances. In end-use sectors, digital technologies can improve efficiency in buildings and transport while also enabling a shift to low-carbon options. 

In addition to indirect effects on emissions in other sectors, digital technologies also have direct effects on energy use and emissions. The data centres, data transmission networks and connected devices that underpin digitalisation account for ~700 Mt CO2e (including embodied emissions), equivalent to ~2% of global energy-related GHG emissions. Since 2010, emissions have grown only modestly despite rapidly growing demand for devices and services, thanks to energy efficiency and electricity system decarbonisation. 

To be in step with the Net Zero Scenario, the global inventory of flexible assets needs to increase tenfold by 2030, which means that all sources of flexibility – including batteries and demand response supported by smarter and more digitalised electricity networks – need to be leveraged. Enabling digital technologies such as smart meters and distributed monitoring and control devices is essential to fully exploit the flexibility potential of the growing number of connected devices. 

As of 2021 an estimated 9 billion digitally-enabled automated devices are in use globally, including 1 billion smart meters. IEA analysis indicates strong growth in the deployment of these technologies, which could be further boosted by policy and regulatory frameworks. 

Further progress on smart EV charging is also needed to tap into the major flexibility potential of the growing EV fleet. Smart chargers currently represent only 1.5% of all charging facilities. If made grid-interactive, other technologies such as heat pumps and air conditioners could also provide flexibility.  

In addition to ramping up deployment of key digital technologies such as smart meters, existing data and digital assets need to be better utilised to provide benefits for consumers and the energy system; it is estimated that utilities are currently leveraging only around 2-4% of data collected. 

Globally, power sector investment in digital technologies rose by around 13% in 2021 to USD 55 billion after a slowdown in 2020, reaching around 18% of total investment in electricity grids. The distribution sector accounts for three-quarters of all grid investment in digital, deploying smart meters and automating substations, feeders, lines and transformers via the deployment of sensors and monitoring devices. 

Digitalisation has become increasingly prominent within clean energy start-ups as more entrepreneurs seek to market new ideas based on digital tools and processes. For example, digitalisation enables new business models, such as energy as a service (EaaS) financial schemes and virtual power plant services for distributed energy resources. These business models provide new opportunities and revenue streams for companies while enhancing system-wide efficiency and demand-side flexibility. Moreover, big tech companies have become top investors in clean energy start-ups. 

Early-stage venture capital raised over USD 500 million in 2021 for investment in companies providing EaaS in buildings, distributed energy resources and grid management. Globally, late-stage venture capital investment in start-ups offering distributed energy resources and grid management services soared compared to previous years, totalling nearly USD 1 billion in 2021, while companies providing EaaS in buildings and charging as a service raised over USD 2 billion. However, pilot projects matching digital technologies with new system opportunities in energy are currently small and concentrated in certain regions and sectors.  

Several countries and regions have recently put forward strategies and action plans to facilitate the digital transformation of their energy systems, while others are beginning to mandate the use of digital technologies to support clean energy transitions.  

• The United Kingdom launched its strategy and action plan on energy system digitalisation for net zero, and set requirements for networks to create digitalisation strategies. The Energy Digitalisation Taskforce has published action-oriented recommendations for a digitalised net zero energy system. 
• In the European Union, building automated control systems will be compulsory from 2025 for non-residential buildings using cooling or heating equipment consuming over 290 kW at peak times, where technically and economically feasible. The European Commission also recently released its Digitalisation of Energy action plan. 
• India has a scheme to improve the quality and reliability of power supply by supporting the deployment of digital technologies, capacity building and training. 
• The United States has set a target to triple energy efficiency and flexibility in residential and commercial buildings by 2030 from 2020 levels, and launched a roadmap for grid-interactive efficient buildings.  

In addition, there are a number of regulatory sandboxes being implemented around the world (e.g. in Brazil, Australia and Spain).

A range of international initiatives aim to tackle challenges and accelerate the deployment of digitalisation in the energy sector, including the following: 

• The IEA Digital Demand Driven Electricity Networks (3DEN) initiative is developing analysis and policy guidance for emerging economies on digitalisation for power system decarbonisation and resilience, with a smart grid pilot programme administrated by UNEP and funded by the Italian government. 
• IEA Technology Collaboration Programmes (TCPs) are informing policymaking related to digitalisation to accelerate clean, efficient and secure energy transitions, including on smart grids, user-centred energy systems, electronic devices and networks, industry and buildings.  
• The Mission Innovation (MI) Green Powered Future Mission aims to demonstrate that by 2030 power systems can effectively integrate up to 100% variable renewables, with digitalisation playing an enabling role. 
• The Energy Efficiency Hub’s Digitalisation Working Group is collating best practices on policies and measures.  

As digital technologies are developing at a much faster pace than the regulatory measures that govern them, forward-looking strategies and innovative frameworks are needed to promote experimentation with new technologies and the deployment and use of digital technologies in the energy sector. Innovative approaches include regulatory sandboxes, as covered for example in ISGAN research and policy guidance.  

Modern power systems require cross-disciplinary knowledge, and growing evidence indicates a lack of ICT skills and access to digital solutions as the main barriers to the digitalisation of the energy sector. Governments and companies can collaborate to identify critical skills needs (ensuring resiliency and adaptability) and to avoid labour bottlenecks, while also pursuing capacity building, reskilling and upskilling. Policies should prioritise the skills needs of vulnerable and underrepresented groups, thereby simultaneously addressing employment, equity and inclusion.  

Digitalisation can enhance access to new, more granular and real-time data and provide useful insights from large and multiple data sources. The benefits of data sharing are often overlooked, underestimated or resisted and there is a lack of incentives to invest in data and develop solutions.  

Privacy and data ownership are also major concerns for consumers, especially as more detailed data are collected from a growing number of connected devices and appliances. Policy makers will need to balance privacy concerns with other objectives, including promoting innovation and the operational needs of utilities. Policy makers developing overarching data strategies should include energy sector considerations. 

Realising the full potential of smart devices and sensors requires high levels of interoperability to allow them to connect, communicate and seamlessly integrate across the system, including through open-source software and data licensing. Policy makers will need to pursue a system-wide approach to promote increased interoperability.  

Common international standards could help to ensure that all assets focused on a particular use case, such as delivering demand flexibility, are compliant with interoperability and data sharing principles. This could also support faster deployment on a global scale. For guidance see the OECD Going Digital Toolkit and the Energy Systems Catapult report on interoperability in the energy sector.   

International initiatives can help coordinate, identify and target areas where increased investment in R&D is most needed to foster digital innovation. Pilots and demonstration projects should address major challenges, cover replicability and scalability aspects, and disseminate useful learning and results. The call for pilot projects on digitalisation for flexible and resilient energy systems – recently launched by UNEP with the support of Italy – includes these elements.  

Cybersecurity risks are growing as energy systems become more digitalised. Policy makers play a central role in enhancing digital resilience by raising awareness, facilitating partnerships and sector-wide collaboration, developing information exchange programmes and supporting research initiatives across the energy sector and beyond. The rapidly changing nature of risks and threats calls for the continuous review and adaptation of policies. 

Digitalisation has implications for jobs and skills in the energy sector and beyond. It is changing work patterns and tasks, causing job losses in some areas and creating new jobs in others. Measures to ensure just transitions are highlighted in the recommendations of the IEA Global Commission on People-Centred Clean Energy Transitions.  

While digitalisation can help to reduce emissions, some applications can increase net emissions by inducing greater consumption or enabling more carbon-intensive energy production. Strong climate policies are vital to ensure that digitalisation helps to accelerate – not hinder – clean energy transitions. 

Proprietary communication protocols can be a serious stumbling block in the path to leveraging digital solutions for decarbonisation and energy system resilience. Industry also has a key role to play in enabling interoperability of technologies and systems. 

A number of international initiatives and alliances aim to drive progress towards open, secure and interoperable systems, including the OSGP Alliance and LF Energy. Further efforts are needed to create and share testing and verification environments.  

The private sector must play a leading role in reducing the direct environmental impacts of data centres, data transmission networks and connected devices, to align with the International Telecommunications Union’s standard and guidance on reducing the sector’s GHG emissions by 45% between 2020 and 2030. Companies can play a major role in deploying digital technologies to reduce emissions across the energy sector and beyond, through initiatives such as the European Green Digital Coalition. 

Industry must play an important role in ensuring digital resilience across the energy value chain. For example, utilities and equipment providers can conduct active monitoring of the supply chain to detect vulnerabilities. Digital resilience must be incorporated by design into research, development and product manufacturing.